The Hindu Business Line : Pooling manager skills

The essence of the multi-manager process is to seek advice from managers with the best skills in specific sectors. — MR MUGUNTHAN SIVA, CIO, OPTIMIX

Optimix, a fund house that focusses on investment "solutions" instead of products, has recently unveiled an open-end fund `Manage-the-Manager Equity Fund' that will pool the investment expertise of several mutual fund and portfolio managers to construct a diversified equity portfolio. Mr Mugunthan Siva, Chief Investment Officer of Optimix, takes a few queries on the product structure and what it will deliver for investors. The NFO is open until March 30.

Who are your target investors for this product?

The Optimix Multi-Manager Equity Fund is ideally structured to form a core portion of all investors' equity asset allocation. The dynamic allocation across styles, sectors and themes ensures that the fund is positioned to consistently deliver superior returns over a medium-term horizon.

What value does the inclusion of portfolio managers, instead of mutual funds, add to the product?

The Manage-the-Manager (MTM) product includes both mutual fund managers as well as Portfolio Management Services (PMS) managers. Broadening the universe of eligible managers (MF & PMS) helps us short-list the best skills available for particular styles, sectors and themes, irrespective of the manager. Moreover, some PMS managers have unique skills in running specialised portfolios, which in a multi-manager context adds a lot of value to this product.

The key advantage offered by a PMS, over a mutual fund, is that is can be customised to an individuals' needs. When you include several of them as a part of your offering, isn't this customisation benefit lost?

The MTM product is not structured as a Fund-of-Funds, but like an ordinary mutual fund product. The essence of the Multi-Manager process is to identify managers having the best skills in specific sectors/niches and award them a mandate for providing advice on the portion of the portfolio allocated to that particular sector. There is therefore, customisation of portfolio advice. The role of the Optimix investment team is than to dynamically manage the allocations to different managers, to tilt the portfolio composition towards specific styles/sectors/themes based on forward-looking analysis. Here, the customisation is used to provide a diversified portfolio with the underlying managers providing advice for which they are best suited.

What would the expense structure be for the MTM product? We see several layers of expenses: your own fund management fees, the fees charged by each PMS and Mutual Fund house and then the fees that you will shell out to third-party advisors.

Being a mutual fund product, the MTM product's expense structure is the same as an ordinary mutual fund's expense structure. The limits on expenses that SEBI has mandated for equity mutual funds, apply to this product as well. There are no layers of expenses as feared. The underlying managers are paid a fee for the investment advice, which comes out of the usual fund running expenses. All other expenses towards audit, custodians etc again come from the running expenses. There are no other factors that increase the expense ratios.

What role do third-party advisors play in this product?

All analysis regarding manager styles, processes, performance, expected market behaviour, economic forecasts and manager allocations are carried out by the in-house Optimix investment team. The only advice that is outside the investment team, is the stock advice taken from the underlying MF Managers/PMS Managers.

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